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LNG spot crash persists as Shell bizarrely talks it up

Screen Shot 2014-02-10 at 16.29.29Extracts from an article published by macro on 18 July 2014

Prices of spot liquefied natural gas (LNG) for August delivery to Asia plummeted 26.5% year-over-year to an average $11.365 per million British thermal units (/MMBtu), the lowest monthly average since April 2011, the latest Platts Japan/Korea Marker (JKM) for month-ahead delivery showed. The drop came as supply continued to outweigh demand.

So, supply is already crimping prices at the margin, even accounting for seasonality. Not good news for Australia’s overpriced magnificent seven projects, though they are protected by oil-linked contracts for now.

Bizarrely, Shell is talking up further investment. From The Australian:

“The (LNG) demand is there and we very much like investing in an OECD country that is so well placed geographically and in terms of capability, and which we know well because we have been here for more than a century.”

…“Labour productivity, in my mind, is below par…But Australia does have a lot of infrastructure, capability and experience in the industry. It’s a bit of a tight labour market but ­labour is, in principle, available.

“I still think Australia has the edge and we are keen to invest more in it.”

“In my mind there is some long-overdue thinking of restructure and consolidation at Gladstone that needs to happen,” he said.

“We can be a very relaxed and strategic player in that game and for me, all options are open.”

One very obvious question we might ask is: if it’s all going so swimmingly then why is there a need for restructuring?

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